Question

Local Co. has sales of $10.5 million and cost of sales of $6.4 million. Its​ selling, general and administrative expenses are   $500,000 and its research and development is $1.5 million. It has annual depreciation charges of $1.2 million and a tax rate of 35%.

c. What is​ Local's net profit​ margin?

Answer 1

Net Profit Margin = (Net Income)*100/sales

​Where,

Sales of Local Co. = $10.5 million

And net income can be calculated in following manner -

Net Income = {sales − cost of sales - selling, general and administrative expenses − research and development − annual depreciation charges} *(1-Tax rate)

​= {$10.5 million - $6.4 million - $500,000 - $1.5 million - $1.2 million} *(1-35%)

= $900,000 * (1-0.35)

= $585,000

The net income of Local Co. is $585,000

Therefore,

Net Profit Margin = $585,000 * 100 / $10.5 million

= $585,000 * 100 / $10,500,000

= 5.57%